some questions about FX Rollover

[FXTRADER1988]

Dear comrades,

I understand that a spot transaction must be settled in two days and that in order to postpone this settlement date and avoid delivery the position is rolled over. So a trade before 5pm ET on Monday should be settled on Wednesday 5pm, but will rollover automatically to Thursday 5PM on Monday 5:01PM, right?

Now I have a couple of questions and I hoped you could help me out here.

- Why interest is paid and received in first place if the contract obligations are postponed all the time and no actual physical currencies come into play?

- Positions initiated after 5PM ET Tuesday and before 5PM ET Wednesday would settle in theory on Saturday 5PM, right but it actually settles sunday or manday? The rollover of Wednesday is three times more than Tuesday. But I don’t really understand why? Wouldn’t the contract just be cancelled on Thursday 5PM and rolled again? And what about Thursday’s rollover, this one settles Sunday 5pm is this one ok? Or no rollovers are paid at all on Thursday and Friday?

I know it isn’t really necessary to understand the real reasons behind but I would like to and couldn’t find anything revealing on the internet either. I hope anyone of you can help me out.
tyvm! I look forward to reading your replies

 

[Rhody Trader]

- Why interest is paid and received in first place if the contract obligations are postponed all the time and no actual physical currencies come into play?

This post should help you out: Forex Rollover and Carry Explained

- Positions initiated after 5PM ET Tuesday and before 5PM ET Wednesday would settle in theory on Saturday 5PM, right but it actually settles sunday or manday? The rollover of Wednesday is three times more than Tuesday. But I don’t really understand why? Wouldn’t the contract just be cancelled on Thursday 5PM and rolled again? And what about Thursday’s rollover, this one settles Sunday 5pm is this one ok? Or no rollovers are paid at all on Thursday and Friday?

Settlement only takes place on business days, so no Saturdays or Sundays (or major holidays either). That's why you get the 3 (and sometimes 4) days of rollover during the latter part of the week.

 

[FXTRADER1988]

I do understand that and have read quite about it but I guess my question is why net interest is being paid/received from the value date to the settlement date in first place... all articles say the amount of the currency sold is borrowed and the one of the currency bought is lend but why does this refer to the actual time transcurring in between the value and settlement date? and not just for the day you're trading it??

The T+2 principle goes like this right? Every time it is 5PM ET it is already considered the next day right?
5:01PM Sun - 5PM Mon --> Settles Wed +1
5:01PM Mon - 5PM Tues ---> Settles Thurs +1
5:01PM Tues - 5PM Wed ---> Settles Friday +1
5:01PM Wed - 5PM Thurs ---> Settles Sat --> Monday??? +3
5:01PM Thurs - 5PM Frid ---> Settles Sunday???? +1 or +2?

 

[Rhody Trader]

As I said above, the +2 is business days only. Two business days from Thursday is Monday (assuming no holiday, of course). Two business days from Friday is Tuesday.